Tag: concept of consumption function, saving function and investment function

Capital is used to produce goods and services and hence is important efficient growth of an economy. 

Efficiency of labour is directly proportional to the supply of capital in an economy, thus supply of capital is increased or decreased by the efforts of man accordingly.

According to economic theory, higher income levels generally provide individuals with a greater surplus after meeting basic needs, which increases their capacity to save.

Capital helps to improve the production,that is ,the action of transforming things from raw materials to finished products.It also helps in increasing the productivity,that is,the ability to produce things in a more efficient and effective manner.

Capital is a passive factor of production thus it is not the core of economic development. Economic development of a country depends on several factors including capital.

Capital is man-made and not a free gift of nature. For example, machinery.

Western countries have high per capita income and thus they have higher savings and investment in their respective economy.

Public capital refers to the productive assets owned by the government. 

Several arms and ammunition is necessary to maintain the defence of the country, which is made with the help of capital such as machines, tools etc.Thus capital helps in maintaining the defence of the country.

When an economy provides more opportunities to save then people save more, thus in turn investment and rate of capital formation rise.